Jinyang Shares IPO: Difícil recuperar pagos de grandes clientes

《Investor Network》Hou Shuqing

Editor Wu Yue

Without doubt, new energy vehicles are one of the hottest tracks in capital markets over the past two years. A number of star companies have emerged. In addition, many enterprises around the upstream and downstream of this industrial chain have also joined the IPO wave accordingly. Wuxi Jinyang New Materials Co., Ltd. (hereinafter referred to as “Jinyang Shares”) is one of them.

Jinyang Shares is mainly engaged in the R&D, production and sales of precision structural components and materials for batteries. It mainly produces battery encapsulation shell housings, safety valves, and nickel-based conductor materials. At present, it has already established stable cooperation with well-known companies such as LG Chem and BYD (002594).

In 2019, the revenue and net profit of Jinyang Shares experienced a certain degree of decline. Jinyang Shares said that performance fluctuations were caused by the fact that its major customer, Bick Battery, was affected by the pullback of new energy vehicle subsidy policies, which led to the company’s cash collection being not smooth and resulting in bad debt. However, the proportion of bad debts in revenue shown in the prospectus does not seem to support this explanation.

In September 2020, Jinyang Shares carried out a capital increase at a price of 16.49 yuan per share. After the capital increase was completed, Jinyang Shares’ valuation was 1.02 billion yuan. If this listing is successful, Jinyang Shares’ valuation would reach 2.63B yuan. However, compared with September 2020, Jinyang Shares’ performance did not show any breakthrough changes.

“Policy-sensitive” industry

From 2018 to September 2021 (hereinafter referred to as the “reporting period”), Jinyang Shares achieved revenue of 608 million yuan, 549 million yuan, 754 million yuan and 853 million yuan, respectively. Net profit attributable to shareholders was 40.62 million yuan, -26.72M yuan, 68.4315 million yuan and 112 million yuan, respectively. During the reporting period, Jinyang Shares’ performance showed significant fluctuations.

Especially in 2019, Jinyang Shares’ revenue decreased to a certain extent from the previous year, and net profit turned from profit to loss.

From a business perspective, the share of Jinyang Shares’ battery precision structural components business in each period’s operating revenue has consistently remained at the level of 60%, which is the company’s main source of income. Sales revenue of this business saw a slight decline in 2019, decreasing from 387 million yuan in 2018 to 213 million yuan, while sales revenue of another main business—nickel-based conductor materials—continued to grow in the same period.

From a more specific analysis of Jinyang Shares’ battery precision structural components business, in 2019, sales revenue of encapsulation shell housings under this business declined significantly, falling from 344 million yuan in 2018 to 271 million yuan. It can be seen that the poor performance of the encapsulation shell housings product is the main reason for Jinyang Shares’ performance decline in 2019.

In the prospectus, Jinyang Shares explained its performance decline in 2019, saying that it was affected by factors such as the rollover of new energy vehicle subsidy policies, which adversely affected business development and capital turnover of some lithium battery industry customers, including Bick Battery.

Although the above policy changes are short-term factors, after 2019, both Jinyang Shares’ operating revenue and net profit exceeded the levels in 2018. But as a new emerging industry, policy changes may always be the “Sword of Damocles” hanging over Jinyang Shares’ head.

Hidden risks in bad debts

In 2018, Bick Battery was Jinyang Shares’ largest customer. In that year, Bick Battery contributed sales revenue of 90.9381 million yuan to Jinyang Shares, accounting for 14.96% of the revenue for the period.

However, doing business with Bick Battery also brought Jinyang Shares a large amount of accounts receivable. At the end of 2018, accounts receivable totaling 57.5521 million yuan came from Zhengzhou Bick Battery Co., Ltd. (hereinafter referred to as “Zhengzhou Bick”) and Shenzhen Bick Power Battery Co., Ltd. (hereinafter referred to as “Shenzhen Bick”).

This accounts receivable laid hidden risks for Jinyang Shares’ performance in 2019. Because the downstream terminal automobile manufacturers had difficulty collecting payments, Bick Battery also began to massively delay payments to upstream suppliers.

In 2019, Jinyang Shares conducted an impairment test of accounts receivable and separately accrued a bad debt provision of 50.1608 million yuan. Zhengzhou Bick and Shenzhen Bick, together, accrued bad debt provisions of 33.57 million yuan.

To reduce risk, in 2019 Jinyang Shares reduced its sales to Bick Battery to 24.3358 million yuan, slightly lower than the 26.1479 million yuan sales of Jinshan Industry, the fifth-largest customer in that year.

But when the industry turned warm again in 2020, Bick Battery became Jinyang Shares’ third-largest customer again. In that year, the sales amount was 46.8577 million yuan.

Although the industry had already warmed up, the carrying balance of accounts receivable from Bick Battery that year decreased by less than 2 million yuan from 2019—from 38.1985 million yuan to 36.6237 million yuan. As of September 30, 2021, this figure exceeded the 40.4924 million yuan at the end of 2018, increasing to 55.59M yuan.

However, the cooperation between Jinyang Shares and Bick Battery did not decrease as a result. From 2019 to September 2021, the transaction amount between Jinyang Shares and Bick Battery increased from 24.3358 million yuan to 56.8556 million yuan.

Looking back at the history of cooperation between Jinyang Shares and Bick Battery, the “Investor Network” found that in 2018, the proportion of Jinyang Shares’ bad debt provision in the accounts receivable balance was 7.67%. After rising to over 20% in 2019, this proportion never decreased again.

If the size of Jinyang Shares’ bad debts has been gradually growing due to the impact of industry policy changes, then why, after 2019, did the size of Jinyang Shares’ bad debts not decrease, but instead gradually increase? Against the backdrop of difficulties in Bick Battery’s payment collection and both high bad debt scale, why did Jinyang Shares still allow Bick Battery to further expand the transaction scale with the company? These are all questions Jinyang Shares needs to answer.

Jinyang Shares is not the only “victim.” Bick Battery was once sued by Rongbai Technology because it failed to pay Hubei Rongbai, a subsidiary of Rongbai Technology (688005), nearly 200 million yuan of overdue payments and also overdue default penalties in full on time.

High debt repayment pressure

During the reporting period, Jinyang Shares’ asset-liability ratio was 56.73%, 56.66%, 50.11%, and 53.86%, respectively. Meanwhile, the average asset-liability ratios of three companies—Keda Li (002850), Zhongrui Electronics, and Zhenyu Technology—during the reporting period were 37.92%, 37.02%, 43.60%, and 45.22%, respectively. During the reporting period, Jinyang Shares’ asset-liability ratio was consistently higher than the average level of comparable listed companies.

Jinyang Shares stated that, in order to meet the needs of production and operation, the company had increased bank financing to a certain extent, and the balance of short-term borrowings increased by 42.0091 million yuan compared with the previous period.

Regarding the company’s lower debt repayment capability, it said that it is currently still in a business expansion period, and it also needs to continuously purchase long-term assets such as fixed assets and construction in progress. These all require support from bank borrowings, which results in the company’s relatively high asset-liability ratio, and thus lower current ratio and quick ratio.

At the end of the reporting period, the company’s cash and cash equivalents on the books of Jinyang Shares totaled approximately 49.01 million yuan, while the balance of current liabilities on the company’s books for the current period was as high as 204 million yuan, facing relatively large repayment pressure.

For this IPO, Jinyang Shares plans to issue no more than 25% of its equity, and plans to raise 658 million yuan, which will be used for the R&D and manufacturing of high-safety performance energy-type power battery-specific materials, the construction of new factory buildings projects, and raising working capital.

In its prospectus, Jinyang Shares candidly stated that in the past, the company lacked financing means. If the proceeds from this offering are obtained, the company’s capital strength will be significantly enhanced, which will help the company reduce its asset-liability ratio and improve its debt repayment capability. (Produced by Thinking Finance)■

(Editor-in-charge: Zhou WenKai )

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